Category Archives: marriage and money

For years, the standard financial advice for couples was to combine their finances. All income, debts and expenditures belong to both parties, so why not put them together?

Combining finances makes sense for many reasons, but not everyone wants to take this direction. If you’re preparing to tie the knot, you might wonder which option is best for you. We’ve collected the pros and cons of combining your finances and keeping them separate so you can decide which method will work for you.

The Pros of Combining Your Finances

Combining your finances can be tricky, especially if both parties have their own debts, accounts and assets coming into the marriage. But it might be worth it for the following reasons:

Women May Have Greater Security

Other research shows that women have greater security when they combine finances with their spouses. That might seem counterintuitive, but remember, women are typically more prone to income interruptions, as they may take time off to start families.

It Keeps Things Simple

Splitting finances may work for some couples, but it can also lead to complicated conversations. Who pays which bills? Should you split evenly when there’s income disparity? Who should pick up the check on date night? If all the money is going into and coming out of the same pot, it may help simplify things.

It Allows for More Flexibility

When you can rely on your spouse to foot the bill while you take parental leave, go back to school or start a new business, you may be more likely to take certain career risks. And in the long run, those risks can be good for the couple if they pan out. If, on the other hand, you have to keep paying your share of the bills, you might be less likely to take the leap.

It Creates Shared Goals

When all the money comes from the same place, the couple needs to communicate. That can be a good thing, as couples can thrive on having common financial goals to work toward.

The Cons of Combining Your Finances

Combining finances may not be the solution for everyone. This strategy also has some potential downsides:

Making Debt a Bigger Issue

If one partner comes into the marriage with big financial problems — including hefty debt or terrible credit — that can turn the relationship sour. In these instances, it can sometimes be better to separate accounts while the indebted spouse works on their finances. (You can keep tabs on your finances by viewing two of your credit scores for free on Credit.com.)

You Can Feel Constrained

As an adult, it’s natural to want to spend your money however you see fit. After all, you earned it. When all the money is combined, you may not get to spend on those personal things you have in mind, especially if your spouse has a say in your spending.

It Can Cause Arguments

What if each spouse has a different idea of what financial responsibility looks like? Maybe one spouse prefers to pay down the mortgage, while the other thinks it’s wise to invest. Or maybe one spouse is frugal, while the other’s a spendthrift. In this case, combining finances requires take serious communication and the ability to compromise.

The Pros of Keeping Things Separate

There are plenty of ways to keep your finances separate. Some partners split expenses down the middle while others split them according to who earns more money. Some partners maintain a joint account for overarching expenses like housing but hold separate accounts for everything else. Regardless of how you do it, keeping separate finances can be good for a few reasons:

Keeping Spouses From One Another’s Messes

If you’re going into marriage with a lot of student loan debt or an otherwise complex financial situation, you may want to keep your money — and money problems — to yourself. This can make your spouse more comfortable and shield them from disaster in an emergency.

Giving Both Spouses More Autonomy

Perhaps the main reason couples decide not to combine finances is because they like having autonomy. Having control over your own money may cut down on fights and allow each spouse to meet their own financial goals.

The Cons of Keeping Things Separate

Here are a few reasons to avoid this option:

It Can Devalue a Spouse

Splitting household expenses by income may seem like a good idea, but it can make each spouse feel their value in the marriage is tied to their salary. However, splitting things 50-50 can make things stressful for the spouse who earns less.

It May Diminish Risk-Taking Ability

As we noted above, one of the advantages of a joint financial approach is that it allows for risk taking. When you have your spouse’s income to fall back on, you can go start a business or have a baby. The opposite may be true of couples who split their finances, unless the couple works out a system to allow for such ventures.

For many couples, the best approach to will be somewhere in between. My husband and I, for instance, combine most of our finances. But we each maintain a separate checking account for “fun money.” We can transfer a predetermined amount of money out of the joint checking account each month and spend that money however we wish. This helps us have a bit more autonomy, but ensures we’re still on the same page about our finances.

Whichever approach you choose, keep evaluating what works and what doesn’t. And don’t be afraid to discuss your feelings and change your approach if things aren’t working.

In MagnifyMoney’s 2017 Divorce and Debt Survey, we polled a national sample of 500 divorced U.S. adults to understand how money played into the end of their relationship.

Here are our key findings:

AMONG ALL SURVEY RESPONDENTS

More money = more problems

Among all respondents, 21% cited money as the cause of their divorce.

In fact, the more money a respondent earned, they more likely they were to cite money as the cause of their divorce.

Among people who earned $100,000 or more, 33% cited money as the cause of their divorce.

By contrast, only 25% of people who earned $50,000 to $99,999 cited money as the cause of their divorce. And the lowest income-earners, those earning $50,000 and under, were the least likely to say money was the cause of their divorce at just 18%.

Money might cause more stress for younger couples

While rates of divorce rose along with the amount of a couple’s’ earnings, the opposite seemed to be true when it came to age. Younger couples reported that financial issues drove them to divorce, while the rate went down for older couples.

Among 25-44 year olds: 24% cited money as the cause of their divorce

Among 45-64 year olds: 20% cited money as the cause of their divorce

Among those 65 and over: 18% cited money as the cause of their divorce

AMONG SURVEY RESPONDENTS WHO CITED MONEY AS THE REASON FOR THEIR DIVORCE…

Divorce often led to debt

Between legal fees, paying for your own expenses instead of sharing the burden with a partner, and other costs that come up when you choose to end a marriage, divorce gets expensive. For couples who already faced financial problems, the added expense often meant getting into even more debt.

Well over half (59%) of respondents who cited money as the cause of their divorce also said they went into debt because of their divorce. And a whopping 60% said their credit score fell after the divorce. By comparison, just 36% of the total survey group said they went into debt because their divorce, and only 37% said their credit score suffered.

Among those who cited money as the cause of their divorce…

2% of respondents said they got away with $500 or less in debt.

13% said they racked up debts of $500 to $4,999.

14% said they took on between $10,000 and $19,999 worth of debt

23% said they owed $20,000 or more

Among all survey respondents…

2% were less than $500 in debt

8% were $500 to $4,999 in debt

6% were $5,000 to $9,999 in debt

8% were $10,000 to $19,999 in debt

12% were $20,000 or more in debt

Overspending was the biggest source of tension

Nearly one-third (30%) of those who said that money was the reason for their divorce also said overspending was the most common problem they faced. Overspending can easily add up to carrying credit balances when the cash runs out — and in fact, credit card debt was the second most common money problem these respondents cited.

Bad credit was also a problem, along with other types of debt like medical and student loan debt. Most financial issues seemed to stem from bad cash flow habits, however. Only 3% said bad investments caused trouble within their relationships.

Financial infidelity was rampant

When overspending and debt become issues within a marriage, partners may feel compelled to hide mistakes and bad money habits from each other. In fact, 56% of survey respondents who said money was the reason for their divorce also admitted that they or their spouse lied about money or hid information from the other person. By comparison, just 33% of all divorcees surveyed said they lied or were lied to about money during their marriage.

Among the survey respondents who cited money as the cause of divorce…

37% said their spouse lied to them about money

8% said they lied to their spouse about money

10% reported that they both lied to each other.

Among all survey respondents…

24% said they their spouse lied about money

3% said they lied to their spouse about money

5% said they both lied about money

Most would rather keep separate bank accounts

With financial stress causing trouble in relationships, it’s not too surprising that 57% of people who cited money as the cause of their divorce said married couples should maintain separate bank accounts. Forty-three percent maintained that within a marriage, couples should keep joint accounts — even though their marriages ended in divorce.

Most failed to keep a budget

A whopping 70% of respondents who said their marriages ended due to money said they didn’t stick to a budget during their marriage. A budget is such a simple tool, but one that’s essential to tracking cash flow and understanding where money comes from — and goes.

Most don’t believe prenups are necessary

Dealing with divorce is never easy, especially when financial problems caused the separation and continue to plague couples after the paperwork is signed thanks to new debts.

Still, 58% of survey respondents whose marriage ended in divorce due to money said they didn’t think couples should get a prenuptial agreement before tying the knot.

How to deal with your finances after divorce

Here are a few tips to help you get back on your feet, financially speaking, once your divorce is finalized:

Recognize your bad money habits. Money issues can negatively impact a relationship, and even cause it to end. But they can hurt you as an individual, too.

Create a budget. Remember, most people whose marriage ended due to financial stresses didn’t keep a budget during their relationship. Doing so now will help you stay on top of your money and know exactly where it goes. That will allow you to make better spending decisions and help prevent taking on even more debt.

Don’t make major money decisions right away. If you just finalized your divorce, you may feel like you need to make major changes or choices right away. But take a moment to slow down and give yourself time to heal. You shouldn’t make emotional decisions with your money — and going through a divorce is an emotional time. Wait until you can think more clearly and rationally before doing anything with your assets, cash, or career.

Money should not be your therapy. Because divorce can do a number on you, mentally and emotionally, you may need help with the healing process. But that does not mean retail therapy! It’s tempting to spend on material things in an effort to make yourself feel better, but any happiness you feel from shopping sprees is temporary and fleeting. It can also leave you into even more debt. Put away your credit cards, stick to cash, and use your budget to guide you.

Work to rebuild your credit. 60% of people reported their divorce hurt their credit. If your credit suffered too, take steps to rebuild it. Pay down debts, make all payments on time and in full, and don’t continue to carry balances on credit cards. Try to avoid taking out too many new loans or lines of credit all at once.

You should also work through this checklist of important actions to take after your divorce:

Make sure all of your assets are in your name only and no longer jointly held.

Cancel accounts or services you held jointly, like utilities or cable. Open new accounts for you in your name.

Allocate a line item for savings in your budget. You want to start rebuilding your own cash reserves. Set an automatic monthly transfer from your checking to your savings so you don’t forget.

Close joint credit cards and get a new line of credit in your name.

If you have children, keep careful records of expenses for them that you plan to split with your ex, in case of disagreements. Ideally, make sure your divorce agreement includes an explanation of how child care will be split and who is responsible for what, financially.

Think about whether you need to hire new financial professionals to help you. You may want to find a new financial planner and certified public accountant. You’ll want to update your financial plan to reflect the fact that you’re no longer married.

Survey methodology: 500 U.S. adults who reported they were in a marriage that ended in divorce via Google Surveys from Feb. 2 to 4, 2017.

I have a lot of married friends, and seeing them tie the knot has prepared me for my own trip down the aisle someday. I know things like invitations should be proofread before they’re sent out, red wine should never be placed near the bride and overspending can stress out newlyweds (and land them in debt if they’re not careful).

But one thing I never expected to learn was how you can never prepare for what’s inside the wedding presents. Sure, there are registries filled with everything from cookware and linens to cash and gift cards. But what happens when guests go rogue and get a little too creative?

Hilarity — that’s what.

My friends are chock full of stories about crazy, inappropriate gifts they received for saying “I do.” Now I’m passing these gems on to you so you can avoid giving a cringe-worthy gift this season. (Note: I’ve kept this on a first-name-only basis to help protect them from any more gift-giver cruelty.)

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1. Soaps From City Hall

Christy and her husband said their nuptials at the local courthouse, but walked away with more than a marriage certificate. “When we arrived, they gave us a little bag full of sample laundry soaps,” she said.

2. A “Gift” From Mom

Things got weird for Annalisa when she received a gift from her future mother-in-law. “I received a bottle of emotion lotion – ‘Blow on it, and it gets hot’ – from his mother! Awkward!”

3. Tarnished Silver

There’s re-gifting, and then there’s what happened to Alexia. “We got a ‘silver’ platter with someone else’s initials engraved on it,” she said.

4. Not Well Done

Stephanie’s family sounds like they were thinking more of themselves than the couple. The gift in question? “A giant 30-piece outdoor grilling set, probably from Costco,” she said. “At the time, we were living in a 350-square-foot studio. Also, we’re vegetarians.”

5. The Book That Keeps Giving

Spencer’s weird gift actually came in handy years later when he had another wedding to attend. “Someone — still, to this day, I’m not sure who — gave us a Kama Sutra book with a subtitle that read something, like ’70-plus Mind-Blowing Positions.’ About five years into our marriage, my wife’s cousin got married, and we needed to get them a gift,” he said. “So rather than spend money on them like normal people, we decided to impart some marital wisdom — we re-gifted the book. But instead of giving it to them in the pristine condition it was in after five years, we roughed it up a bit. We bent a few page corners and wrote a bunch of notes throughout, like ‘Spencer’s favorite,’ or ‘Remember to stretch first’ or ‘Do not attempt on a wood floor.’”

6. Advice From the ’90s

Courtenay wouldn’t have minded some tips on how to combine finances after marriage, but she didn’t expect them to be so outdated. “We got a used Dave Ramsey cassette tape on how to manage your personal finances,” she explained, “and this was in 2010, so it’s not like cassette players were still widely in use.”

7. Painting the Future

Tiffany likes her creative friends, but she didn’t expect this gift: “My future mother-in-law’s friend painted a picture of baby Jesus and Mary and paired it with a box that contained a marriage advice CD. We’re not religious at all.”

8. As Seen on TV

Late-night infomercials and self-promotion seemed to be the theme for Megan’s wedding gifts: “My husband and I got an ‘As Seen on TV’ slider burger press, even though we’ve both been vegan for years. I did actually try to make black bean veggie patties in it once, but it was a huge fail. We also had someone give us a signed copy of their own book.”

9. The Junk Drawer

Leilla and her husband didn’t receive a kitchen sink, but they got nearly everything else. “Someone gave us candles, a cheese knife, a bread knife and other random items that were obviously from their kitchen drawers,” she said.

10. A Not-so-Sweet Gesture

Jaime didn’t expect a huge surprise, but this gift was a bit hard to swallow: “My cousin got me two packs of old, half-melted Gummy Bears. I kept thinking there was something else, like maybe a gift card or a ‘Just kidding!’, But no, nothing.”

Who knew there were so many bad gift-givers out there? These are just 10 of the stories I heard, and they kept coming. If you have a wedding to attend, there are gifts that won’t require you to run up a big credit card bill (which could hurt your bank account and your credit score) and will even be useful to the couple. For some ideas, check out our list of 30 wedding gifts that keep giving.

Couples may be inclined to buy a new home together — and, if necessary, apply for a home loan — but new data suggest you ought to think twice before saying “I do” to joint mortgages. In fact, according to a note from the Federal Reserve, some borrowers could have saved a lot of money in interest if they’d applied solo.

“Specifically, we find that nearly 10% of prime borrowers who applied for their loans jointly could have lowered their mortgage interest rate at least one eighth of 1 percentage point if the mortgage was applied for by the applicant with a higher credit score and an income high enough to qualify for the mortgage,” the note reads. “Furthermore, among the joint applicants with a lower credit score below 740, for whom mortgage interest rates are most sensitive to credit scores, more than 25% could have significantly reduced their borrowing cost by having the individual with a higher credit score apply.”

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How Couples Wind Up Overpaying

Good credit scores generally qualify you for the best terms and conditions on any type of financing, but mortgage borrowers are subject to what the Fed calls “the minimum FICO rule,” FICO being a popular credit scoring model. Per this rule, when two people apply for a mortgage together, only the lower of the two credit scores is considered in the underwriting and pricing of the loan by originators, mortgage insurers and secondary market guarantors.

We use the term “could” because the rates and fees you pay on a mortgage can also be affected by your debt-to-income ratio. Borrowers generally need a 43% debt-to-income ratio to obtain a mortgage. So, if you need both your incomes to reach that threshold, applying together could give you more borrowing power.

It’s worth doing some number-crunching before applying for loans, especially if you both need to be on the deed (not mortgage) to claim ownership of the home. Based on its analysis of over 600,000 joint-applicant securitized mortgages made between 2003 and 2015, the Fed estimates couples subject to the minimum FICO rule could have reduced their annual interest payment by $220 to $1,400 had they let the person with better credit apply solo.

How to Get Your Credit Mortgage-Ready

Of course, it’s a good idea to fix your credit (or have your spouse fix his or hers) before applying for a mortgage. You can generally improve credit scores by paying down high credit card balances, limiting inquiries during your home loan search and disputing any errors on credit reports. (You may want to hire someone like a credit repair company if you’re overwhelmed by the process or want to hit the “easy button.”) You can also build good credit by making loan payments on time, keeping the amount of debt you owe below 30% and ideally at 10% of your available credit limit, and adding a mix of credit accounts over time.

Are those not the most romantic words you’ve ever heard? Prenuptial agreements are one way to ensure that your money stays separate while you are married, but can definitely be a killjoy when it comes to the relationship.

So what if you really want to keep your money separate but have decided that the prenuptial is not worth the headache, expense or aggravation? Are there ways to keep your money separate while you are married? The short answer is yes … most of the time. Certain assets can absolutely be protected. Others … not so much.

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Drawing (State) Lines

The first level of the analysis is to find out if you live in one of the nine community property states. They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, all property is presumed to be “community” property (of the property of both parties) and the burden is then on the one who wants to prove otherwise to the court. That this can often be a difficult task goes without saying. The principle behind this and all marital property law (as well as alimony law) goes back more than 100 years, and is that both spouses have a duty to support each other in all ways; morally, physically, financially.

The vast majority of the states are equitable distribution states. In those states, the courts will take a look at everything either of the parties has and make three piles: his, hers and theirs (with gay marriage now legal, the piles may be his, his and theirs or hers, hers and theirs, but you get the idea). So the his and her piles would contain assets, such as inheritances, gifts that were meant for just that one spouse and any assets that the party earned prior to the marriage that were all kept separate during it.

The caveat to the above though — and this is a big one — is that, generally, anything that either party actually “earns” during the marriage (including wages, business income for a business where one person works, 401K contributions, stock options — anything received for actual work), is going to be marital. Unless you have a prenuptial or postnuptial agreement, there is no keeping this element of your assets separate.

Furthermore, think of those “earnings” like a teaspoon of baking soda you add to your cake mix and stir up – once it’s in there, that’s it. You can’t decide to take the baking soda back out.

With those concepts in mind, here are a few ways to keep your assets separate.

1. Keep Your Inherited or Premarital Assets Separate

The word “commingling” is often synonymous with “lottery winnings” to one spouse; and “gambling losses” to the other. If you have an account that has funds in it that you either owned prior to the marriage or received during the marriage as inheritance or a non-marital gift that you mixed in to your earnings or joint funds from another bank account – then poof! The entire account becomes marital. Why? Because the courts consider money to be “fungible” meaning that once that marital dollar goes in, you can’t tell which dollar is coming back out. (Remember the baking soda.) To prevent problems and/or confusion in case of divorce, you can keep your premarital/inherited assets separate during marriage.

2. Don’t Put Your Spouse’s Name on the Title of Your Real Estate or Bank Accounts

Many people own a home prior to getting married. Oftentimes, especially if that home is where the married couple lives, the homeowner decides to throw the other person’s name onto the deed or the title of your financial accounts. While you could argue down the road, that you only did if for estate planning purposes, meaning that the spouse would be able to get the house and the money if you died first, that argument almost always fails in court.

To be certain, you don’t have to have this argument, just don’t put the other person’s name on the deed or your bank accounts – unless you are completely prepared to hand half of their value over to the other spouse in a divorce.

3. Be Careful About What You Use Your Earnings For

It is easy enough to decide to keep your own property in your own name and not add someone’s name to a deed or to a financial account. The rub comes when it maintaining that premarital property. This is where one or both of the spouses use their paychecks or other joint funds to pay down the debt on that property, or to make renovations or improvements to that property.

Now the court is going to be faced with trying to carve out which part of the value of the property might be marital and what part of the value has remained non-marital – a tedious and tortuous task. To keep it all clean, just use your funds from your premarital or inherited account to maintain your non-marital property, too.

By following these few simple steps, you should be able to keep the property you owned prior to the marriage, or inherited during the marriage as your own separate asset, without having to spend lots of money to litigate what was yours in the first place. You and your spouse can enjoy the fruits of your joint labor, and what the two of you built during the marriage.

Benjamin Franklin said, “There are only two certainties in life — death and taxes.” This applied to the entire LGBT community even before Massachusetts took the first step to expedite The (so-called) Apocalypse and legalized same-sex marriage.

Since then, the number of married gays and lesbian who can share in Social Security benefits and play Tax Loophole Twister just like our straight peers has increased. It went up even more following the Supreme Court’s Obergefell decision in June.

Now we’re spiraling into tax season — and getting a hold of your accountant will be more difficult than the Broncos not blowing it in the post-season. However, here’s the most important question newly married lesbian or gay couples should ask when filing your taxes: Should you file “married and filing jointly” or “married and filing separately”?

This is a decision straight married couples have made since, well, since the option was allowed. For most lesbian and gay married couples, the question is new, the difference is considerable and the decision is consequential. Here are some of the basics you should know if you and your spouse are getting ready to do your taxes together for the first-time.

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The Pros & Cons of Filing Jointly

The perks for being married and filing jointly are significant. Considering the tax incentives offered to legally bound couples, the government appears to want people to be married. (Up until recently, it just wanted the “right people” to be married, but, we digress.)

First, there’s the “Marriage Bonus.” The marriage bonus happens when there’s income disparity between both spouses. If it applies, the marriage bonus could put the average income of the couple in a lower tax bracket because of the lower income earner.

Being married and filing jointly also affords a couple of tax credits that may not apply if you’re married and filing separately. These credits include, but aren’t limited to the Credit for Child and Dependent Care, Earned Income Tax Credits and education credits, such as the American Opportunity and Lifetime Learning Education Credits. Joint filers also have higher income thresholds when it comes to some deductions, which means they can qualify for certain incentives while making more money.

Going through married life locked together at the hips and on your tax forms isn’t all roses, though. The biggest con with filing jointly is what’s called the “Marriage Penalty.” Married couples in which both spouses earn similar incomes can get bumped into a higher tax bracket than when they filed as individuals or if they chose to file separately.

Filing jointly also poses a risk if your spouse has tax problems. If your spouse has tax liens or owes the government money, for instance, you may become responsible for their burdens. If you file separately, you’re shielded from these and other potential problems.

The Pros & Cons of Filing Separately

Certain deductions that require a percentage of your Adjusted Gross Income (AGI) are more easily achieved with the lower AGI from filing separately rather than filing jointly. For example:

Miscellaneous expenses that are more than 2% of your AGI may be deducted.

Emergency expenses over 10% of AGI may be deducted.

One of you may qualify to contribute the max for a Roth IRA, whereas jointly neither of you may qualify.

On the flip side of filing jointly, you’re off the hook for tax liabilities your spouse may have, if you file separately. As such, doing so could protect certain assets from the government and may be better for your marriage overall.

Of course, going solo, too, isn’t a bed of roses. Filing separately lowers deductions for Traditional Individual Retirement Account (IRA) contributions. While it’s good to invest in an IRA regardless, this reduces the immediate benefits.

Along with the other tax deductions and credits afforded to those couples who file jointly, you can’t take the student loan interest or tuition deduction if you file separately.

If this all sound confusing, some would argue that this is the point. Our advice, no matter how much you learn about taxes, is to consult with a tax professional. The IRS and certain companies offer means to file taxes for free, but it may be worth your time and investment to speak with a human to get all your questions answered.